Friday, November 30, 2012

It is amazing how many open source software companies out there are trying to get hit by the same $1B bolt of lightning that hit MySQL without realizing that the MySQL result is not repeatable.

Looking at the current batch of big data high flyers, from TenGen to Cloudera to Horton Works, each seems to be vying for the same kind of ubiquitous usage that enabled MySQL to get a more than 20x multiple. What they don't realize is that the failure of early open source acquisitions to deliver substantial value to owners has made buyers much more wary.

Companies like MySQL were valued based on a mystical belief that downloads could be monitized (not unlike the similarly wishful belief in monetizing eyeballs that motivated disastrous dot com acquisitions in the 90s). Moving forward, open source companies will be valued the old-fashioned way: by the viability of their business model.

Here are the top three places most big data open source companies are missing the boat:

Prioritizing business model behind buzz: although buzz is critical for adoption growth, a viable business model trumps all in positioning a company for IPO or acquisition. First and foremost, this means being able to charge significant prices for add-on product pieces that customers want, such as security, clustering and monitoring.

Confusing services with sales: low margin services revenues are no substitute for high quality license revenues. More importantly, companies that build up large services teams often neglect to fully integrate their product, as product integration provides a driver for services engagement. This lack of product maturity in turn prevents customers from being willing to pay much for the product itself - a classic vicious cycle.

Hoping for a desperate buyer: companies that purchased open source players have by and large to translate open source leadership into commercial market share. The open source downloads generate lots of buzz but little license revenue, saddling their owners with an expensive, services-led business. In the immortal words of Mitt Romney, hope is not a strategy (although it *did* turn out to be an ok strategy for the incumbent in that case).

Thursday, November 15, 2012

No, this is not a joke about three guys walking into a bar but the result of some recent musing about how the art of management is practiced in Silicon Valley.

The classic Silicon Valley stories often feature what Jim Collins calls "the genius with a thousand helpers" (from his book Good to Great). Steve Jobs, Larry Ellison and many other valley icons were known for their vice-like control over all aspects of their business.

When that Genius individual really is the smartest person in the world, you get the iPhone. When they are not, you get Palm's WebOs. Working for a boss who always has to be the smartest man in the room is a humbling experience but at least you know where you stand - at the bottom.

The contrast to the Genius is the conductor, a person who - without playing an instrument themselves - is judged purely on their ability to draw great performances out of others. This is the idealized, servant CEO that is touted in all of the business school texts but seen much less frequently in the wild.

Examples of the Conductor style of leadership would include people like Paul Maritz of VMware. In my experience, there is nothing in the work world that beats the thrill of working with a committed team on big, hairy, audacious goals where the person leading the charge is focused purely on helping the team win.

The third category is the Bureaucrat. The thing to remember about Bureaucrats is that what they are best at producing is more Bureaucrats. These are people who are always overwhelmed with work but never make decisions that would offload that work. In a way, they follow the same model as the Genius, in that all decisions have to come through them.

The goal for all CEOs should be to aspire to play the Conductor role, while realizing that it is human nature to slip into Genius and Bureaucrat now and again.